European stocks turned positive on Friday. National Economic Council Director Larry Kudlow said yesterday that trade discussions with China had been going well, with fantastic progress being made last week. These comments helped to somehow ease market concerns over the trade war but there is still uncertainty on this front due to Trump’s unpredictability and recent skepticism expressed by the US trade representative Robert Lighthizer who highlighted the outstanding issues with negotiations.
As for the news from Europe, German unemployment dropped by 32,900 in February, to the lowest February reading since reunification. Euro zone manufacturing PMI turned lower from 50.5 to 49.3, while inflation in the region slowed down to 10.1% from 10.0%. Against this backdrop, Britain’s FTSE 100 adds 0.46 per cent to 7,106, France’s CAC 40 is up 0.61% to 5,272, while German DAX 30 rises by 1.02 per cent to 11,633. US stock index futures are trading higher before the opening bell, sheering strong growth data.
The dollar extends yesterday’s gains against major rivals at the end of the trading week. EURUSD peaked yesterday marginally above the 1.14 threshold but failed to keep the bullish momentum against the backdrop of a widespread dollar recovery after stronger-than-expected US GDP report. The common currency is also lower due to mixed fundamentals from the euro zone. The pair faces support around 1.1350 and struggles to regain the upside momentum, though the selling pressure looks limited as well. Positive risk sentiment caps the negative effect from rising dollar and suggests the prices will hold above the 1.13 figure unless the US reports come in better than expected.
USDJPY jumped to fresh 2019 highs today, with the rally stalled around the 112.00 figure recently. After a break above the 100- and 200-DMAs, the near term technical outlook has improved amid souring safe-haven yen demand due to a better risk sentiment. Should the current tone in the global financial markets persist, the dollar will stay elevated in the near term. On the other hand, lack of investor enthusiasm going forward could fuel profit-taking at attractive levels and bring the pair back below the mentioned moving averages.
Brent crude tried to resume the ascent during the morning trading, extending gains marginally above the $67 figure. However, the prices failed to keep gains and had to retreat afterwards, turning negative on the day. The effect from stronger China PMI and positive comments on the trade deal has somehow abated, and traders preferred to take profit ahead of the weekend. The market is still stuck between the contradictory factors. On the one hand, OPEC-led supply cuts and US sanctions on Iran and Venezuela are playing into the bulls’ hands. By the way, Venezuelan oil exports declined by 40% in February. On the other hand, record US output and exports partially offset the positive impact on the market. And the lingering uncertainty over the US-China trade talks adds to the forces that cap the bullish impetus in oil prices. In the short term, Brent will likely remain elevated but the potential for a firm break above the $67 handle looks limited at this stage.
Nathan Lambert, Head of Global FX Analytical Department